SALES CONTRACTS

A sales contract is an agreement between a buyer and seller covering the
sale and delivery of goods,
securities,
and personal property other than goods or securities. In the United
States domestic sales contracts are governed by the
Uniform Commercial Code
(UCC). International sales contracts fall under the
United Nations
Convention on Contracts for the International Sale of Goods (CISG), also
known as the Vienna Sales Convention.

Under Article 2 of the UCC, which has been adopted by every state (except
Louisiana), the District of Columbia, and the U.S. Virgin Islands, a
contract for the sale of goods for more than $500 must be in writing in
order to be enforceable (UCC 2-201). The sale of securities is a special
case covered in Article 8 (UCC 8-319); to be enforceable a contract for
the sale of securities must be in writing regardless of the amount
involved. For the sale of other kinds of personal property, a minimum of
$5,000 must be involved before an enforceable contract must be in writing.
Otherwise, an oral agreement is enforceable as a binding contract.

Contracts
that must be in writing to be enforceable are said to be within the
Statute of Frauds. The Statute of Frauds dates back to 1677, when the
English Parliament decreed that certain types of contracts must be in
writing. The applicable parts of the UCC effectively define the types of
sales contracts that must be in writing. In addition, every state has its
own version of the Statute of Frauds.

Under the UCC a written sales contract should specify the parties
involved, the subject matter to be sold, and any material or special terms
or conditions. Some states also require that the consideration—the
amount and type of payment for what is purchased—be specified. The
UCC does not require a formal sales
contract, though. In many cases a memorandum or collection of papers is
sufficient compliance. The courts have held that a written check can be
considered a written memorandum of a sales agreement. The UCC allows a
written sales contract to be enforced even if it leaves out material terms
and is not signed by both parties. One party, however, may not create a
sales contract on its own that is binding against another party, and an
enforceable contract must be signed by the defendant, or the one against
whom the contract is sought to be enforced.

Although Article 2 of the UCC has not been revised since the 1950s, it was
reviewed during the 1990s for possible changes to reflect changing ways of
doing business. Five specific issues were addressed in the review of
Article 2:

repeal of the Statute of Frauds, which requires contracts to be in
writing; over the years numerous exceptions to this rule have been
adopted

electronic data interchange
(EDI) and the enforceability of standard form terms; where the standard
forms of buyers and sellers differ, a proposed revision would default to
the UCC's standard provisions, especially regarding implied
warranties
and consequential damages

general provisions concerning the formation and modification of sales
contracts were proposed

express warranties made by advertising were addressed

it was proposed that the ability of remote commercial buyers to recover
on warranties be limited

In many cases a purchase order, pro forma invoice, or order acknowledgment
may serve in place of a formal sales contract. A purchase order is issued
by the buyer and sent to the seller, stating the type and amount of goods
to be purchased, the price, and any other material terms such as a time
limit on filling the order. A pro forma invoice is issued by the seller
and sent to the buyer, often in response to a purchase order or oral
agreement. In international transactions, the pro forma invoice may enable
the buyer to open a line of
credit
with which to pay for the goods ordered. The pro forma invoice typically
includes relevant terms and conditions that apply to the sale.

A formal order acknowledgment is useful for establishing the
seller's position in case a dispute should arise. The order
acknowledgment is drawn up by the seller in response to a received
purchase order. It does not necessarily repeat the details of the purchase
order, but it may clarify details such as delivery schedules.

When a formal order acknowledgment is countersigned by the buyer, it
becomes a type of sales contract.

For international transactions, the Vienna Sale Convention is binding on
signatory countries, of which the United States is one. Each of the
nations that has signed the convention may state up to five reservations.
For example, the United States has stipulated that it shall apply to U.S.
companies only when the transaction involves another signatory country.
Much of the convention parallels the UCC, with these notable exceptions:
(1) acceptance of an offer that includes a request for additions or
modifications constitutes a counteroffer; (2) there is no provision
requiring a contract be written in order to be enforceable; and (3) the
period for discovering defective merchandise may be as long as two years.

Sales contracts are useful in providing for a common understanding between
buyer and seller, minimizing disputes. When a dispute does occur, the
sales contract can help provide for a fair settlement.

[
David
P.
Bianco
]

FURTHER READING:

Brinkman, Daren R. "Unsecured Creditors' Rights in Sales
and Secured Transactions: Is the Revised UCC 'New and
Improved' or Just 'New'?"
Business Credit,
September 1998, 34-37.

Fraser, Jill Andresky. "Around the World in 180 Days (Collecting
International Receivables)."
Inc.,
April 1997, 107-8.

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